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In 2019, total revenue for X Company was $1,915,400. Total costs were as follows: Direct materials...

In 2019, total revenue for X Company was $1,915,400. Total costs were as follows:

Direct materials $262,300  
Direct labor [all variable] 274,500
Variable overhead 292,800
Fixed overhead 169,000
Variable selling and administration 268,400
Fixed selling and administration 188,000

If total revenue in 2020 is expected to be $1,778,810, what are expected profits in 2020 [round the CM or CM rate to two decimal places]?

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Answer #1

Answer : Expected profit for 2020 = $4,02,018

Step 1 : calculation of contribution margin ratio for 2019

Particularls Amount
Sales $1,915,400
Variable cost ($2,62,300 + $2,74,500 + $2,92,800 + $2,68,400) $1,098,000
Contribution margin (sales - variable cost) 8,17,400
Contribution Ratio (contribution margin ÷ sales) 42.67%(rounded off to two decimals)

Step 2 : Total fixed cost = $1,88,000 + $1,69,000 = $3,57,000

Step 3 : By using above contribution margin ratio let us find contribution margin for 2020 :

Contribution margin = sales × contribution ratio

= $1,778,810 × 42.67%

= $7,59,018

Net profit = sales - variable cost - fixed cost

= Contribution margin - fixed cost

= $7,59,018 - $3,57,000

= $4,02,018

Therefore

Expected profit for 2020 = $4,02,018

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